Start your baby's college fund at birth (or sooner)

The only time better than at birth to start a college fund is when you got married and decided to have kids. If that didn't happen, let's get serious and figure out how to get the college fund started.

Even if you don't set money aside for college, your child can still go to school, but her options will be much more limited (unless she has exceptional grades). You can give her many more options with small contributions to a college fund over time. If you want to be sure she can go to any school in the world where she's admitted, prepare yourself.

For every $10,000 you would like to have available to help your baby pay for college at her 18th birthday, you'll need to save about $29 per month (assume a 5 percent return, which you can earn in many mutual funds that invest in medium term corporate bonds). Keep in mind, that inflation in college tuition has been running well ahead of the broader inflation rate for the last two generations. It would be foolish to plan on that changing.

It is difficult to know how much money you'd need, but near the upper limit, you can reasonably expect to pay about $300,000 for an Ivy League education in 18 years, meaning that you'd want to be saving about 30 x $29 or about $870 every month.

You may, instead, want to plan on your baby living at home and attending a local college. By eliminating room and board as an expense, you reduce the need dramatically. Depending on the school and your state, you may be able to cover four years of tuition, books and fees for about $50,000. That would require you to save only 5 x $29 or about $145 every month.

If you can't save that much, save what you can. Even a savings of $58 per month for the next 18 years would give you about $20,000. If you combine that with living at home, needs-based scholarships, summer and part-time jobs, you can see that you may be able to fund your baby's college education without student loans.

Don't fall into the trap of assuming that you can or will borrow whatever is needed to fund your baby's education when the day comes. While this may be true, the impact may be that you saddle your baby with debt that robs her of the benefits of a college education for most of her career or you end up with a debt that could rob you of a healthy retirement.

If you need to borrow a bit to close the gap between your savings, other resources (grants and scholarships, summer and part-time employment) and the cost of the education, that's OK. Borrowing 10 to 20 percent of the cost should neither ruin your retirement nor your baby's life. Think of student loans as the way to close the gap if there is no other alternative. Don't let student loans become the way you pay for college.

By starting a savings plan when your baby is born, you can give your baby better options for her college education when she is 18.